7 Most Common Money Mistakes for Startups to Avoid

Dealing with your finances properly from day one is the best way to set yourself up for lasting success. Smart financial management, with Real Time information is essential for any business, no matter how big or small.

Setting up your finances correctly is not only for stability, it’s essential to demonstrate you’re capable of growth. However, if it was easy everyone would be an overnight millionaire! (these don’t exist by the way!). With this in mind, we’ve listed the most common financial mistakes that startups make and how to avoid them.

1. Not using the data
Lots of business coaching tells you to take risks and develop a growth mindset. That is important for taking the leap into becoming your own boss and deciding to try new markets however it isn’t always wise to use instinct over information. Making assumptions about your finances can be dangerous.

What you need is detail and facts. If you don’t have them you can’t forecast and if you can’t forecast, how do you know if you’re on the right path? Lack of detailed attention can mean a small mistake goes unnoticed for too long, which could be damaging for your business.

To start with an Excel spreadsheet will suffice but be prepared to upgrade to bookkeeping software later on.

2. Not hiring an expert
Early on in your business you probably can manage records of the income and outgoings yourself. Understanding accounting and tax planning however is best handed to a professional accountant as early as possible. Self-taught accounting eventually results in a backlog of errors whereas getting it right from the start with the help of a professional accounting service save time, money and stress.

You could try just outsourcing your taxes or setting up quarterly meetings with a financial consultant for help and advice while you get going and build it from there.

3. Failing to set Budgets
Whether it’s setting up budgets to certain types of investment, like a website or on activities such as networking, setting a budget to a project or a type of spending prevents it from draining your finances should something go wrong.

If the budget is clear, you will always be able to track return of investment or overspending quickly and easily, rather than using instinct. This will help you make better decisions that won’t end up causing damage to your business.

4. Being disorganised
Paperwork and record keeping might make you yawn but doing it right is a necessary evil! It is always easier to do a two-minute job now than create a two-hour task backtracking in the future because you can’t recall where a receipt is or can’t remember what some income was for.

Gaps in financial records create headaches and ultimately, could lead to queries and possibly investigations by HMRC. It’s always easier to do the little things that matter as you go along. Keeping all of your receipts and cross-referencing your accounts with your bank statements is vital.

5. Not doing your market research
What do your customers need? And more importantly, have you checked you truly meet that need in the way they want it? Knowing your target market helps you to be present and active in the places they look for you, understand who your competition is and learn how to appropriately price your products and services.

It’s always useful to know:

  • What is your market position?
  • What need do you fulfil for your customers?
  • How much value do your products or services provide?
  • Who is your competition – and what makes you stand out?

All of this leads to better pricing and better pricing leads to sustainable profit.

6. Hiring Quantity Over Quality
Quite simply, people are always going to be the biggest cost to the business but over-hiring is a common and expensive mistake. Too many staff too soon doesn’t just cause salary issues, you need to calculate the real costs of hiring an employee. What is the cost to your time and training period – when do they start becoming profitable? If it takes while for them to actual start making money for you because they have to learn and adjust to your ways, not forgetting the holidays and sickness and making cups of tea you need to factor in, how much does that employee really make you?

Another costly mistake is hiring the wrong people. The wrong person creates an imbalance that can negatively impact other staff and even damage your business’ reputation. Don’t rush the hiring process. Taking extra care to avoid mistakes can save a lot of trouble in the long run.

7. Guessing how much you’re spending
In other words, keep an eye on the cashflow. You need to know exactly how much cash your business needs each month and how much you’ll need to survive. Underestimating can cause serious problems. We all forget something! So, proper accounting systems are needed, ideally using software that keeps your figures up to date in real time. This way you can monitor it closely, making adjustments whenever necessary.

What we’re saying is a successful business needs a strong financial foundation. Everyone makes mistakes but keep the mistakes we’ve just listed in mind. If you can prevent these ones form happening, you’ll go a long way towards becoming stable.